Am I Understanding Overpayments Right? Confused :)

PoorPrincess

Hi ladies & gents,

Apologies in advance if this is in the wrong area.

My husband and I took out a mortgage 2 years ago with Halifax over a 35 year term (first time buyers) at a crazy rate of nearly 6% where our payments were around £420 p/m.

We have just rolled onto the variable at 3.99% and so our payments have dropped down to £307 p/m.

We are looking to over pay on our mortgage to bring it back up to the £420 a month (Halifax allows this)

My question is:

Is over paying to bring up to the old figure (which reduces the term significantly if we always did this) the same as remortgaging but over a shorter term and paying around the £420 as a miniumum or payment?

Or is one way more cost effective with interest etc than the other?

Hope I've made sense and really appreciate and help that can be given.

x

kingstreet

Yes.

If you remortgage to a new lender over a shorter term, the mortgage will be repaid in the same timescale as overpaying your current mortgage, if the rate is the same and you pay the same amount each month.

What's your loan to value likely to be?

At a lower LTV you might get a better rate than 3.99% with no fees (other than the Halifax account fee of £245) and be able to pay it off even quicker.

PoorPrincess

Thanks for your reply. Great to know that I'm totally wrong and we are not doing anything detrimental.

We are currently at a LTV of just under 80%. It is a new build property so we struggled in the beginning with Lenders for new builds hence the high rate with Halifax I think.

kingstreet

Yes.

Possibly.

The newbuild premium falls away the minute you move in, so you have to be careful to ensure the property is really worth as much as you think it is after only a few years after purchase.

You could overpay on SVR for another year or two, then look to remortgage elsewhere when you feel you've passed a loan to value boundary, ie 85%, 80% etc.

dimbo61

With your new rate of 3.99% I would overpay every penny you can for a couple of years to build up equity and reduce your debts.

getmore4less

Mortgage term is irrelevent( other than that's the lastest date you need to pay it off).

The thing that determines how long a mortgage will last is the payment.